Riot Platforms, Inc. (RIOT) FY 2024 MD&A

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information that will assist the reader in understanding our results of operations and financial condition. This MD&A should be read in conjunction with our Consolidated Financial Statements and the related notes (the “Notes”) that are included in Part II, Item 8. “Financial Statements and Supplementary Data” of this Annual Report.

This MD&A generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. As a result of the elimination of the Data Center Hosting reportable segment during 2024, year-to-year comparisons between 2023 and 2022 are also presented within Results of Operations.

Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 not impacted by the elimination of the Data Center Hosting reportable segment are not included in this MD&A, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Our MD&A is organized as follows:

35

Table of Contents

For a discussion of our business, see Part I, Item 1. “Business” of this Annual Report.

Forward Looking Statements

This MD&A includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. See “Cautionary Note Regarding Forward-Looking Statements.”

BUSINESS OVERVIEW AND TRENDS

General

​

We are a leading Bitcoin mining company focused on utilizing our vertical integration strategy to mine Bitcoin in support of the Bitcoin blockchain. We own and operate multiple Bitcoin mining sites in the United States with two locations in Texas, consisting of the Rockdale Facility and the Corsicana Facility, and the Kentucky Facility. The Rockdale Facility is believed to be the largest Bitcoin mining facility in North America, as measured by developed capacity, and currently provides 700 MW in total developed capacity. Additionally, we are developing our second large-scale Bitcoin mining facility, the Corsicana Facility, which currently provides 400 MW in developed capacity. Upon completion, the Corsicana Facility is expected to have approximately one GW of capacity available. During 2024, we capitalized on our positioning within the market and acquired Block Mining, a Kentucky-based vertically-integrated Bitcoin miner and E4A Solutions, a leading provider of electrical engineering services to a diverse customer base of energy developers and data center operators. The Block Mining Acquisition added 60 MW of operational capacity for self-mining operations, which we are working to expand to 110 MW in 2025, and provided us with access to a secondary electrical grid. The acquisition of E4A Solutions adds engineering expertise to service our own existing and future electrical infrastructure, as well as provides solutions and services to the rapidly growing market for electrical infrastructure.

​

Our market environment is highly competitive globally and regionally. We compete against other large-scale Bitcoin miners and individuals to receive the Bitcoin reward that is the heart of our operations. Our industry frequently evolves based on the proliferation of Bitcoin and cryptocurrencies in general, and we believe we are well positioned in the digital commodities industry in which we operate.

We are organized in two business segments: Bitcoin Mining and Engineering.

​

Bitcoin Mining

During the year ended December 31, 2024, we continued development activities at the Corsicana Facility, acquired the Kentucky Facility and deployed miners at all our Facilities, with the objective of increasing our operational efficiency and performance in the future. As of December 31, 2024, we had a total deployed hash rate capacity of 31.5 EH/s, as compared to 12.4 EH/s as of December 31, 2023, an increase of 154.0%.

​

During the year ended December 31, 2024, we mined 4,828 Bitcoin, as compared to 6,626 Bitcoin mined during the year ended December 31, 2023. The decrease of 1,798 Bitcoin was primarily due to the April 2024 halving event, which was partially offset by our increase in deployed hash rate.

​

We are targeting a total self-mining hash rate capacity of 38.4 EH/s by the end of 2025.

​

36

Table of Contents

Custodians

​

As Bitcoin is a decentralized cryptocurrency, it is not required that Bitcoin be held by a custodian, and we may elect to self-custody. However, we believe our private keys relating to our Bitcoin are better safeguarded by the secure environment provided by custodians. Self-custody poses an increased risk to our private keys and we may not have the same level of protection as custody providers who are well versed in industry best practices to protect digital assets from potential theft, loss, or destruction.

​

Pursuant to the Digital Asset Custodial Agreement, dated as of November 1, 2023, between us and NYDIG (as may be amended, modified or supplemented from time to time, the “NYDIG Custodial Agreement”), NYDIG, a well-known U.S.-based third-party digital asset-focused custodian, holds our Bitcoin in cold storage wallets in a digital asset account in our name. In exchange for its custodial services, NYDIG charges an annual fee equal to a percentage of our custodied Bitcoin based on the daily average value in U.S. dollars of the Bitcoin we custody with NYDIG. Our Bitcoin held in such digital asset accounts does not constitute “deposits” within the meaning of U.S. federal or state banking law and the digital asset accounts are not subject to Federal Deposit Insurance Corporation or Securities Investor Protection Corporation protections. The cold storage wallets in which our Bitcoin is held with NYDIG are all located in the United States. The NYDIG Custodial Agreement is for a term of one-year, and automatically renews for successive one-year periods, unless either the Company or NYDIG provides thirty days’ notice of termination, in writing, except that either the Company or NYDIG may terminate the NYDIG Custodial Agreement in writing, effective immediately, in the event that either NYDIG or the Company are adjudged bankrupt or insolvent or files an application for an arrangement with its creditors, or there is a material misstatement or failure of a party to perform its obligations under the NYDIG Custodial Agreement, a change in applicable law that has a material adverse effect on the services provided for in the NYDIG Custodial Agreement, or a substantial change in ownership or control or material adverse change in the financial condition of NYDIG or the Company.

​

The NYDIG Custodial Agreement contains certain mutual indemnification provisions, including that NYDIG will indemnify us against direct claims for loss of custodied assets that arise directly from NYDIG’s or NYDIG’s nominees’ grossly negligent action, grossly negligent failure to act, bad faith or willful misconduct. Additionally, the Company shall indemnify NYDIG against all claims and liabilities incurred or assessed against NYDIG in connection with the NYDIG Custodial Agreement, except as may arise from certain of NYDIG or its nominees’ own actions or conduct.

​

For more information on the NYDIG Custodial Agreement, see the full text of the NYDIG Custodial Agreement filed herewith as Exhibit 10.22, which qualifies the forgoing descriptions of the NYDIG Custodial Agreement in its entirety.

​

We are also a party to a Digital Asset Execution Agreement with NYDIG Execution LLC (“NYDIG Execution”), pursuant to which NYDIG Execution executes or arranges transactions of our Bitcoin (“Orders”) as our agent. NYDIG Execution earns a commission on each trade determined by the net trade proceeds in U.S. dollars. NYDIG Execution does not charge us additional fees for principal trades. We deliver our Orders to NYDIG Execution via a designated security procedure, and each Order is affirmatively accepted by NYDIG Execution. While our Bitcoin may temporarily be processed through a NYDIG Execution customer account, NYDIG has covenanted that our assets will not be commingled with the assets of NYDIG Execution. NYDIG Execution is required to deposit any cash from the sale of our Bitcoin into our bank account at a U.S. depositary institution, less any applicable commissions. NYDIG Execution does not guarantee the value of our Bitcoin and is not responsible for any delay or failure to complete any Order caused by a digital asset network. If NYDIG Execution fails to (1) execute a properly executable Order and (2) give us notice of such failure, NYDIG Execution will only be liable for our actual damages.

​

The Company also engaged Coinbase, a well-known U.S.-based third-party digital asset-focused custodian through the Coinbase Prime Broker Agreement, which includes the Coinbase Custody Services Agreement, and the Coinbase Master Trading Agreement (together, the “Coinbase Prime Broker Agreement”) for custodial and prime broker services, including, but not limited to, the storing of digital assets, trade execution, lending, post-trade credit, and other services. In exchange for its custodial services, Coinbase charges an initial storage fee and an annualized custodial service fee based on the total value of the digital assets the Company custodies with Coinbase. Our Bitcoin held in such digital asset accounts does not constitute “deposits” within the meaning of U.S. federal or state banking law and the digital asset accounts are not subject to Federal Deposit Insurance Corporation or Securities Investor Protection Corporation protections. The cold storage wallets in which our Bitcoin is held with Coinbase are located in the United States.

​

The Coinbase Prime Broker Agreement shall remain in effect until terminated by Coinbase or the Company for any reason upon providing thirty days written notice to the other party. However, Coinbase may, in its sole discretion, suspend, restrict or terminate the Coinbase Prime Broker Agreement, including by suspending, restricting or closing the Company’s accounts or any provision of credit (as applicable), immediately upon the occurrence of an Event of Default (as defined in the Coinbase Prime Broker Agreement), without prior notice to the Company.

​

37

Table of Contents

The Coinbase Prime Broker Agreement contains certain mutual indemnification provisions, including that Coinbase will indemnify the Company from and against direct claims and losses arising out of or relating to any (i) violation, misappropriation, or infringement upon any United States patent, copyright, trademark, trade secret or other intellectual property right of a third party or (ii) violation of applicable law, unless such claims or losses arise out of or relate to the Company’s gross negligence, fraud, willful misconduct, or breach of the Coinbase Prime Broker Agreement. The Company will indemnify Coinbase from and against any and all third-party claims and losses arising out of or relating to the Company’s breach of the Coinbase Prime Broker Agreement, the Company’s violation of any law, rule, or regulation, or rights of any third party, or the Company’s gross negligence, fraud, or willful misconduct, except to the extent such third-party claims and losses resulted from the gross negligence, fraud or willful misconduct of Coinbase.

​

Additionally, under the Coinbase Prime Broker Agreement, Coinbase may execute or arrange transactions of our Bitcoin as our agent. The Company will pay a fixed rate as commission and transaction fees associated with the Order executed. The Company delivers Orders to Coinbase, and Coinbase executes Orders by using automated trade routing services or by filling Orders on Coinbase’s over-the-counter trading service. Coinbase may accept or reject any Order, at its sole discretion. Coinbase does not guarantee the value of our Bitcoin and is not responsible for any delay or failure to complete any Order caused by a digital asset network.

​

For more information on the Coinbase Prime Broker Agreement, see the full text of the Coinbase Prime Broker Agreement included herein as Exhibit 10.23, which qualifies the forgoing descriptions of the Coinbase Prime Broker Agreement in its entirety.

​

Our custodian and brokerage services relationships are non-exclusive, and we may change our Bitcoin custodian and brokerage relationships at any time. We continually monitor our Bitcoin assets held by our Custodians, and in the case of NYDIG we have unlimited audit rights with respect to such custodial accounts. The Company performs monthly reconciliations of our Bitcoin assets held by our custodian(s) and the records of our mining pool, and our independent auditors verify the location and quantity of our Bitcoin assets annually, as part of the year-end audit process of our financial statements and internal controls over financial reporting. The Company’s insurance providers do not have inspection rights associated with our Bitcoin assets held in cold storage.

​

Bitcoin Mining Metrics

​

The following table presents our key Bitcoin Mining metrics:

​

38

Table of Contents

​

​

​

​

The following table presents our cost to mine one Bitcoin (amounts in thousands, except value of one Bitcoin amounts):

​

​

​

​

​

39

Table of Contents

​

​

​

​

During 2023, we entered into purchase orders under the Master Agreement to acquire new immersion miners from MicroBT. These purchase orders represented a total hash rate of 25.6 EH/s, for a total purchase price of approximately $453.4 million, subject to downward price adjustment as provided by the Master Agreement. These miners are primarily for use at the Corsicana Facility, which commenced operations in April 2024. Delivery of these miners began in 2023 and all miners are expected to be received and deployed by mid-2025. The Master Agreement provides us with four additional annual options to purchase miners, on the same or more favorable terms as the second purchase order executed under the Master Agreement. These additional miners represent a total hash rate of approximately 75.0 EH/s, assuming exercise of all four annual purchase options.

​

During the year ended December 31, 2024, we executed an additional purchase order with MicroBT under the Master Agreement to acquire new air-cooled miners with a total hash rate of 5.9 EH/s, for a total purchase price of approximately $96.7 million. This purchase order is in addition to the four additional purchase options remaining under the Master Agreement. Delivery of these miners occurred in the third quarter of 2024, and deployment commenced upon delivery.

​

For the year ended December 31, 2024, Bitcoin Mining revenue was approximately $321.0 million.

​

Summary of Bitcoin Activity

​

The following tables present additional information about our own Bitcoin Mining activities, including Bitcoin production, purchases, and sales:

​

​

40

Table of Contents

Data Center Hosting

​

In 2023, we made the decision to stop pursuing new hosting contracts and end our legacy contracts, to focus on our self-mining efforts. During the year ended December 31, 2024, all agreements with Data Center Hosting customers were terminated, and we have no plans to offer data center hosting services to new customers. We no longer report Data Center Hosting as a separate reportable segment.

​

Engineering

Our Engineering business designs and manufactures power distribution equipment and custom engineered electrical products. The products allow us to vertically-integrate many critical electrical components and engineering services necessary for our site developments and to reduce our execution and counter-party risk in ongoing and future expansion projects. The specialized talent employed in our Engineering business allows us the opportunity to explore new methods to optimize and develop best-in-class Bitcoin Mining operations and have been instrumental in the development of our industrial-scale immersion-cooled Bitcoin mining hardware.

Our Engineering business also provides electricity distribution product design, manufacturing, and installation services primarily focused on large-scale commercial and governmental customers and serves a broad scope of clients across a wide range of markets including data center, power generation, utility, water, industrial, and alternative energy.

Engineering revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts with one identified performance obligation. Engineering revenue is recognized over time as performance creates or enhances an asset with no alternative use, and for which we have an enforceable right to receive compensation as defined under the contract.

In December 2024, we acquired E4A Solutions, a leading provider of electrical engineering services to a diverse customer base of energy developers and data center operators (the “E4A Solutions Acquisition”). This acquisition adds to our vertically integrated strategy by adding engineering expertise to service its own existing and future electrical infrastructure as well as provide solutions and services to the rapidly growing market for electrical infrastructure.

​

For the year ended December 31, 2024, Engineering revenue was approximately $38.5 million.

Strategic Goals and Initiatives

Bitcoin Treasury Strategy

Our Bitcoin acquisition strategy involves mining Bitcoin utilizing vertical integration, and from time to time, subject to market conditions, purchasing Bitcoin with our liquid assets derived from issuing debt or equity securities. Our vertical integration strategy has supported our stability during market fluctuations and allows us to capitalize on industry consolidation while building on our liquidity position.

We view our Bitcoin holdings as long-term holdings, and during the year ended December 31, 2024, made the strategic decision to halt the sale of Bitcoin, and instead increase our Bitcoin holdings.

​

Power Strategy

Long-term power contracts form the basis of our power strategy. We utilize our Power Purchase Agreements (“PPA”) in place at the Rockdale Facility (the “Rockdale PPA”) and Kentucky Facility (the “Kentucky PPA”) in the following ways:

Manual Curtailment

We power down operations and return power to the utility when market prices for electricity provide the potential for us to receive more power curtailment credits than the Bitcoin Mining revenues we would have generated had we not curtailed our mining operations. We receive power credits for the difference in the market power price and our fixed power price, which provides us the ability to maximize our overall profitability between Bitcoin Mining and supporting the grid by not drawing power from the grid when electricity is most scarce.

41

Table of Contents

Ancillary Services

We competitively bid to sell ERCOT and MISO the option to control our electrical load during certain hours. ERCOT and MISO compensate us in the form of Demand Response Credits, which are received whether or not we are called on to power down.

ERCOT’s 4CP Program

At the Rockdale Facility, we voluntarily power down operations during times of peak demand in summer months. Participation provides us substantial savings on transmission costs in the subsequent year’s power bills, reducing our overall power costs.

The following table presents our power curtailment credits at the Rockdale Facility and the Kentucky Facility:

​

The following graph presents the primary decision points that guide our decision to curtail power usage or power down our mining operations at the Rockdale Facility, and when we might resume mining operations:

​

42

Table of Contents

Challenges, Risks, and Industry Trends

Increased Competition and Network Difficulty

The price of Bitcoin increased during the first quarter of 2024 due to a new source of demand, the eleven Bitcoin spot ETFs, which were approved to begin trading by the SEC on January 11, 2024. The ETFs, as investment vehicles, provide a new access point for investors to gain exposure to Bitcoin through more traditional markets.

During 2023 and 2024, the Bitcoin mining industry saw record growth as the price of Bitcoin increased from the lows experienced in early 2023. The increasing Bitcoin price renewed opportunities to access capital markets to fund growth, leading to unprecedented expansion in mining operations and resulting in a doubling in the size of provisioned hash calculation services on the network, as measured by total hash rate. Many Bitcoin mining companies heavily invested in implementing vertically-integrated business models, infrastructure, and upgrading and expanding mining fleets in advance of the April 2024 Bitcoin network halving. Competition on the Bitcoin network has expanded in kind and we expect competition within the mining industry to continue as long as Bitcoin prices remain elevated or increase further.

We have observed that when the market price for Bitcoin experiences a sustained increase (as it did across 2024), new miners are introduced onto the Bitcoin network, increasing its network difficulty. Despite increasing our hash rate by approximately 154.0% from December 31, 2023, to December 31, 2024, the halving in April 2024 and increased network difficulty following increased network hash rate across the periods resulted in a decrease of approximately 27.1% in the number of Bitcoin we mined in 2024 as compared to the same period in 2023.

Accordingly, as network difficulty continues to increase, existing miners will need to increase their hash rate to maintain and improve their chances of earning a Bitcoin mining reward. To do this, we seek out new Bitcoin mining capacity, including through our acquisition and development of new Bitcoin mining facilities (such as the Corsicana Facility and the Block Mining Acquisition) and electricity supply and distribution facilities to service them, as well as other strategic growth opportunities. Further, we have adopted new and improved technology to increase both our mining power and efficiency, including our industrial-scale adoption of immersion cooling and our strategic acquisitions of large quantities of the newest and most powerful and efficient miners available.

Increased Transaction Fees

The Bitcoin mining industry recently experienced an increase in transaction fees on the Bitcoin network, as well as an increase in overall demand for Bitcoin. Various protocols on the Bitcoin network gained popularity during 2023, and at times temporarily resulted in a significant increase in the transaction fees paid to add a certain Bitcoin transaction to the blockchain. These transaction fees are volatile in nature but are paid directly to miners and are representative of public interest in transacting in Bitcoin. Transaction fees are packaged with the block subsidy issued by the Bitcoin network to combine for the total reward paid to miners upon solving a block.

We have led the industry by focusing on a vertically-integrated business model since 2021. We continue to focus on building long-term stockholder value by taking strategic actions to further vertically-integrate our business at the current Rockdale Facility, developing the Corsicana Facility, and having acquired the Kentucky Facility and E4A Solutions. Management believes a focus on vertical integration will positively affect each of our business segments by providing increased capacity for our Bitcoin Mining operations, more opportunities for implementing our proprietary power strategy, and by positioning us to capitalize on supply chain efficiencies and electrical engineering services garnered through our Engineering segment. We continue to focus on deploying our efficient Bitcoin mining fleet, at scale, while realizing the benefits of being an owner and operator of our Bitcoin Mining facilities.

Grid Curtailment

​

The PUCT, ERCOT, and Oncor collectively oversee the regulatory, administrative, and delivery aspects of our power supply in Texas; MISO oversees our power supply in Kentucky. In recent years, regulatory scrutiny on Bitcoin mining facilities and their energy consumption has intensified as the industry has grown.

​

As the grid operator, ERCOT is responsible for monitoring and testing market participants, including our Bitcoin mining facilities in Rockdale and Corsicana, to evaluate their impact on grid reliability. During this process, ERCOT may issue curtailment notices to reduce the power usage at our Texas operations. We are periodically tested and monitored, and have experienced curtailment of power based on instructions we receive from Oncor and ERCOT. Due to the uncertainties regarding the duration or extent of power curtailments and testing procedures, we are currently unable to reasonably estimate any potential impacts to our business. If we

43

Table of Contents

cannot secure adequate access to electrical power, we may be forced to reduce or shut down our operations, which would have a material adverse effect on our business, prospects, financial condition, and operating results.

​

See Part I, Item 1A. “Risk Factors” of this Annual Report for additional discussion regarding potential impacts our competitive and evolving industry may have on our business.

​

Recent Events Affecting the Company

For the year ended December 31, 2024, we continued to experience an inflationary environment and global supply chain logistics issues across all channels of distribution. We have experienced delays in certain of our miner delivery schedules and in our infrastructure development schedules due to constraints on globalized supply chains for miners, electricity distribution equipment, and construction materials. We have also experienced delays in our Engineering business segment’s manufacturing and delivery schedule, and in our infrastructure development schedules, resulting from constraints on the globalized supply chains for miners, electricity distribution equipment and construction materials.

​

Through the date of this Annual Report, we have been able to effectively and efficiently mitigate delivery delays to avoid materially impacting our miner deployment schedule, however, we cannot guarantee that we will be able to continue to mitigate any such delivery delays in the future. Additionally, the development and potential expansions of our Facilities require large quantities of construction materials, specialized electricity distribution equipment, and other component parts that are in high demand and can be difficult to source. To help mitigate the impacts of global supply chain constraints and increasing demand for these goods, including any inflationary pricing concerns that may result, we have procured and already hold many of the electrical infrastructure components and materials required for development of the next 600 MW phase of our development of the Corsicana Facility, as well as replacement components and parts for our existing systems, to help shorten the impact of potential damage to installed equipment.

​

RESULTS OF OPERATIONS

Results of Operations Comparative Results for the Years Ended December 31, 2024 and 2023

Revenue

Our total revenue for the years ended December 31, 2024 and 2023, was $376.7 million and $280.7 million, respectively, and consisted of Bitcoin Mining revenue, Engineering revenue, and Other revenue. Other revenue consists almost entirely of residual activity related to our ceased Data Center Hosting segment.

For the years ended December 31, 2024 and 2023, Bitcoin Mining revenue was $321.0 million and $189.0 million, respectively. The increase of $132.0 million was primarily due to an increase in price of Bitcoin in the 2024 period, which averaged $66,488 per Bitcoin, as compared to $28,523 per Bitcoin for the 2023 period, partially offset by decreased production resulting from the increase in the Bitcoin network difficulty and the April 2024 halving.

For the years ended December 31, 2024 and 2023, Engineering revenue was $38.5 million and $64.3 million, respectively. The decrease of $25.8 million was primarily attributable to supply chain constraints resulting in decreased receipts of materials, delaying the completion of certain custom products, and therefore, the recognition of revenue. Our custom electrical products are used as important components in data center development and in power generation and distribution facilities. There continues to be significant demand for these products due to the escalated interest in data center construction, as well as the growing worldwide demand for power.

44

Table of Contents

Costs and expenses

For the years ended December 31, 2024 and 2023, Cost of revenue for Bitcoin Mining consisted of the following:

​

This increase of approximately $92.6 million was primarily due to the increase in Bitcoin Mining capacity at the Rockdale Facility and commencement of Bitcoin Mining activities at the Corsicana Facility, both of which require additional headcount and direct costs necessary to maintain and support our expanded Bitcoin Mining operations, as well as the absorption of other costs previously included in our former Data Center Hosting segment. Cost of revenue for Bitcoin Mining excludes depreciation and amortization, which are stated separately on our Consolidated Statements of Operations.

​

Cost of revenue for Engineering for the years ended December 31, 2024 and 2023 was $41.7 million and $60.6 million, respectively. The costs consisted primarily of direct materials and labor, as well as indirect manufacturing costs. Consistent with the causes of decreased Engineering revenue noted above, the decrease of approximately $18.9 million was primarily due to decreased receipts of materials resulting from increased competition for direct materials due to supply chain constraints.

​

Selling, general and administrative expenses for the years ended December 31, 2024 and 2023, totaled $266.9 million and $100.3 million, respectively. Selling, general and administrative expenses consist of stock-based compensation, legal and professional fees, and other personnel and related costs. The increase of approximately $166.6 million was primarily due to increases in stock compensation expenses of $93.0 million, which was primarily due to new grants under our long-term incentive program, compensation expenses of $22.8 million as a result of hiring additional employees to support our ongoing growth, legal and professional fees of $29.4 million primarily related to ongoing litigation, public company compliance, and ongoing due diligence, and $21.2 million for additional insurance and other costs primarily attributable to ongoing growth.

Depreciation and amortization expense during the years ended December 31, 2024 and 2023 totaled $212.1 million and $252.4 million, respectively, a decrease of $40.3 million. The decrease was primarily due to the change in the estimated lives of our Bitcoin miners from 2 years to 3 years, partially offset by increased depreciation from the Corsicana Facility coming online in April 2024 and additional miners being deployed.

The changes in fair value of Bitcoin for the years ended December 31, 2024 and 2023 were gains of $457.4 million and $184.7 million, respectively, and were recognized to adjust the fair value of our Bitcoin held at the end of each period.

The changes in fair value of our derivative asset for the years ended December 31, 2024 and 2023 were gains of $45.3 million and $6.7 million, respectively, and were recorded to adjust the fair values of the Rockdale PPA and 25 MW Power Purchase Agreement in place at the Corsicana Facility (“Corsicana PPA”), which are classified as a derivative assets and measured at fair value. The changes in fair value were primarily due to changes in future power prices over the applicable period. The gain incurred during the year ended December 31, 2024, was primarily attributable to the average of the forward prices utilized in the discounted cash flow estimation models increasing from $45.15 per megawatt hours (“mWh”) as of December 31, 2023, to $51.70 per mWh as of December 31, 2024.

Power curtailment credits during the years ended December 31, 2024 and 2023 were $33.7 million and $71.2 million, respectively, and represent sales of unused power under the Rockdale PPA and the Kentucky PPA and participation in ancillary services under ERCOT and MISO Demand Response Services Programs. The amount of these credits varies from period to period depending on various factors impacting the supply of power to, and the demand for power on, the power grids, such as weather and global fuel costs.

45

Table of Contents

Loss on the sale/exchange of equipment during the years ended December 31, 2024 and 2023, were $17.4 million and $5.3 million, respectively. The loss on sale during the year ended December 31, 2024, was attributable to the sale of 19,817 Antminer model S19 XP miners for proceeds of $14.3 million. The loss on sale during the year ended December 31, 2023 was attributable to the sale of 2,700 Antminer model S19 XP miners for proceeds of $6.4 million.

Casualty-related recoveries (charges), net during the years ended December 31, 2024 and 2023 were $2.8 million and $6.0 million, respectively. In December 2022, the Rockdale Facility was damaged during severe winter storms in Texas, resulting in casualty-related charges being recognized in 2023 and 2022. The recoveries recognized during the years ended December 31, 2024 and 2023, were primarily the result of cash recoveries from insurance claims related to the December 2022 winter storms.

Other income (expense)

For the years ended December 31, 2024 and 2023, total other income (expense) was ($43.4) million and $8.5 million, respectively. The net expense recognized during the year ended December 31, 2024, was primarily attributable to unrealized losses on marketable securities of $69.5 million, partially offset by higher interest income earned as a result of higher cash balances and increased interest rates. The income recognized during the year ended December 31, 2023, was primarily attributable to interest income.

Income Taxes

For the years ended December 31, 2024 and 2023, total income tax benefit (expense) was ($0.7) million and $5.1 million, respectively. The decrease in income tax benefit of $5.8 million was primarily attributable to the change in the contingent consideration liability.

Results of Operations Comparative Results for the Years Ended December 31, 2023 and 2022

Revenue

Total revenue for the years ended December 31, 2023 and 2022 was $280.7 million and $259.2 million, respectively, and consisted of Bitcoin Mining revenue, Engineering revenue, and Other revenue. Other revenue consists almost entirely of residual activity related to our ceased Data Center Hosting segment.

For the years ended December 31, 2023 and 2022, Bitcoin Mining revenue was $189.0 million and $156.9 million, respectively. The increase of $32.1 million was primarily due to a 19.3% increase in the number of Bitcoin mined in the 2023 period as compared to the 2022 period, which was primarily the result of an increase in miners deployed, partially offset by an increase in the Bitcoin network difficulty.

For the years ended December 31, 2023 and 2022, Engineering revenue was $64.3 million and $65.3 million, respectively. The decrease of $1.0 million was primarily attributable to supply chain constraints resulting in decreased receipts of materials, delaying the completion of certain custom products, and therefore, the recognition of revenue. Our custom electrical products are used as important components in data center development and in power generation and distribution facilities. There has been increased demand for these products due to the escalated interest in data center construction, as well as the growing worldwide demand for power.

Costs and expenses

For the years ended December 31, 2023 and 2022, Cost of revenue for Bitcoin Mining consisted of the following:

​

46

Table of Contents

This increase of approximately $22.3 million was primarily due to the increase in Bitcoin Mining capacity at the Rockdale Facility, which requires additional headcount and direct costs necessary to maintain and support our expanded Bitcoin Mining operations. Cost of revenue for Bitcoin Mining excludes depreciation and amortization, which are stated separately on our Consolidated Statements of Operations.

​

Cost of revenue for Engineering for the years ended December 31, 2023 and 2022 was $60.6 million and $57.5 million, respectively, an increase of approximately $3.1 million. The costs consisted primarily of direct materials and labor, as well as indirect manufacturing costs. The increase was primarily due to increased cost of labor and materials, partially offset by decreased receipts of materials resulting from increased competition for direct materials due to supply chain constraints.

​

Selling, general and administrative expenses for the years ended December 31, 2023 and 2022, totaled $100.3 million and $67.5 million, respectively, an increase of approximately $32.8 million. Selling, general and administrative expenses consist of stock-based compensation, legal and professional fees, and other personnel and related costs. The increase was primarily attributable to an increase in compensation expense, which increased by $12.2 million as a result of hiring additional employees to support our ongoing growth, increased stock-based compensation of $7.6 million due to the adoption of the long-term incentive plan and additional headcount, increased legal and professional fees of $8.1 million primarily related to ongoing litigation and public company compliance, and an increase of $5.0 million in other general operating costs such as insurance and information technology projects to support our growth.

Depreciation and amortization expense during the years ended December 31, 2023 and 2022 totaled $252.4 million and $108.0 million, respectively, an increase of $144.4 million. The increase was primarily due to higher depreciation expense recognized for the Rockdale Facility and the significant increase in the number of recently acquired and deployed miners.

The change in fair value of Bitcoin for the year ended December 31, 2023 was a gain of $184.7 million, and was recognized as a result of adopting Accounting Standards Update (“ASU”) No. 2023-08, Intangibles-Goodwill and Other-Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”), effective January 1, 2023, under which Bitcoin is recognized at fair value with changes in fair value recognized in net income. The gain recognized was attributable to increases in the price of Bitcoin and the increased quantity of Bitcoin held as of December 31, 2023, as compared to December 31, 2022.

The changes in fair value of our derivative asset for the years ended December 31, 2023 and 2022 were gains of $6.7 million and $71.4 million, respectively, and were recorded to adjust the fair value of the Rockdale PPA, which is classified as a derivative asset and measured at fair value. The changes in fair value were primarily due to changes in future power prices over the applicable period. The gain incurred during the year ended December 31, 2023, was primarily attributable to the average of the forward prices utilized in the discounted cash flow estimation models increasing from $43.59 per mWh as of December 31, 2022 to $45.15 per mWh as of December 31, 2023.

Power curtailment credits during the years ended December 31, 2023 and 2022 were $71.2 million and $27.3 million, respectively, and represent sales of unused power under the Rockdale PPA and participation in ancillary services under ERCOT Demand Response Services Programs. The amount of these credits varies from period to period depending on various factors impacting the supply of power to, and the demand for power on, the ERCOT power grid, such as weather and global fuel costs.

Realized gains on sale/exchange of Bitcoin for the years ended December 31, 2023 and 2022 were zero and $30.3 million, respectively, and impairment of Bitcoin was zero and $147.4 million, respectively. As a result of adopting ASU 2023-08 effective January 1, 2023, under which Bitcoin is recognized at fair value, gains on the sale/exchange of Bitcoin and impairment of Bitcoin are no longer recognized.

Casualty-related (charges) recoveries, net during the years ended December 31, 2023 and 2022 were $6.0 million and ($9.7) million, respectively. In December 2022, the Rockdale Facility was damaged during severe winter storms in Texas, resulting in casualty-related charges being recognized in 2023 and 2022. The income recognized during the year ended December 31, 2023, was the result of cash recoveries from insurance claims related to the December 2022 winter storms.

Gain (loss) on the sale/exchange of equipment during the years ended December 31, 2023 and 2022 was $(5.3) million and $16.3 million, respectively. The loss on sale during the year ended December 31, 2023 was attributable to the sale of 2,700 Antminer model S19 XP miners for gross proceeds of $6.4 million. The gain on sale during the year ended December 31, 2022 was attributable to us exchanging approximately 5,700 Antminer model S19 Pro miners previously deployed at the Coinmint Facility for 5,000 factory-new Antminer model S19j Pro miners.

47

Table of Contents

Other income (expense)

For the years ended December 31, 2023 and 2022, total other income (expense) was $8.5 million and ($8.6) million, respectively. The income recognized during the year ended December 31, 2023 was primarily attributable to interest income earned as a result of higher cash balances and increased interest rates. The loss incurred in 2022 primarily consisted of realized losses on marketable equity securities of $9.0 million upon the sale of all of our marketable equity securities.

Income Taxes

For the years ended December 31, 2023 and 2022, total income tax benefit (expense) was $5.1 million and $11.7 million, respectively. The decrease in income tax benefit of $6.6 million was primarily attributable to the change in the contingent consideration liability.

Non-GAAP Measures

In addition to financial measures presented under generally accepted accounting principles in the United States (“GAAP”), we consistently evaluate our use of and calculation of non-GAAP financial measures such as “Adjusted EBITDA.” EBITDA is computed as net income before interest, taxes, depreciation, and amortization. Adjusted EBITDA is a financial measure defined as EBITDA adjusted to eliminate the effects of certain non-cash and/or non-recurring items that do not reflect our ongoing strategic business operations, which management believes results in a performance measurement that represents a key indicator of our core business operations of Bitcoin mining. The adjustments include fair value adjustments such as derivative power contract adjustments, equity securities value changes, and non-cash stock-based compensation expense, in addition to financing and legacy business income and expense items.

We believe Adjusted EBITDA can be an important financial measure because it allows management, investors, and our Board to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making such adjustments. Additionally, Adjusted EBITDA is used as a performance metric in our share-based compensation plan.

Adjusted EBITDA is provided in addition to, and should not be considered to be a substitute for, or superior to, net income, the most comparable measure under GAAP to Adjusted EBITDA. Further, Adjusted EBITDA should not be considered as an alternative to revenue growth, net income, diluted earnings per share or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. Adjusted EBITDA has limitations as an analytical tool, and you should not consider this financial measure either in isolation or as a substitute for analyzing our results as reported under GAAP.

​

48

Table of Contents

The following table reconciles Adjusted EBITDA to Net income (loss), the most comparable GAAP financial measure:

​

​

LIQUIDITY AND CAPITAL RESOURCES

We generate non-cash revenue through mining Bitcoin at our Facilities, which we retain based on our Bitcoin Treasury Strategy, while financing operations and other expenses with cash typically raised through the issuance of our common stock under our ATM offering program. Additionally, in the year ended December 31, 2024, we used nearly all of our cash proceeds from our 0.75% Convertible Senior Notes due 2030, to acquire Bitcoin. During the year ended December 31, 2024 and 2023, we issued and sold approximately 90.6 million shares and 62.2 million shares, respectively, of our common stock under our ATM offering program for aggregate net proceeds (net of sales commissions and expenses) of $956.6 million and $761.8 million, respectively.

As of December 31, 2024, our net working capital totaled approximately $439.1 million, including cash and cash equivalents of $277.9 million, and marketable securities of $134.3 million. During the year ended December 31, 2024, we reported net income of $109.4 million, which included $395.7 million in non-cash net gains, primarily consisting of revenue recognized from Bitcoin mined of $321.0 million, $457.4 million in change in fair value of Bitcoin, and the change in fair value of the derivative asset of $45.3 million, partially offset by depreciation and amortization of $212.1 million, stock-based compensation of $125.2 million, and the unrealized loss on marketable securities of $69.5 million.

During the year ended December 31, 2024, we sold 212 Bitcoin for proceeds of approximately $9.5 million. Subsequent to those sales, we made the strategic decision to temporarily halt the sale of all our Bitcoin production and instead, increase our Bitcoin holdings. We monitor our balance sheet on an ongoing basis and evaluate the level of Bitcoin retained from monthly production in consideration of our cash requirements for ongoing operations and expansion.

Contractual Commitments and Obligations

As of December 31, 2024, we had a remaining commitment of approximately $1.0 million due to MicroBT for the contractual purchase of miners, which was paid in full in January 2025.

49

Table of Contents

Development of the Corsicana Facility

During the year ended December 31, 2022, we announced our planned development of the Corsicana Facility, our second large-scale Bitcoin Mining facility located on a 265-acre site in Navarro County, Texas. The Corsicana Facility is expected, upon completion, to have 1.0 GW of developed capacity, with an additional 200 MW of electrical capacity available for development, at our discretion, which is securely supplied with power by a substation being developed for us on the premises that will be interconnected with the nearby Navarro Switch. The strategic decision to locate the Corsicana Facility next to the Navarro Switch was made to limit electricity lost in transmission and maximize the efficiency of our substation’s power distribution facilities. The initial phase of the development of the Corsicana Facility involved the construction of a 400 MW substation and an equal amount of immersion-cooled Bitcoin Mining infrastructure spread across multiple buildings, as well as construction of various utilities, offices, warehouses, and infrastructure to support the facility’s operations. Our Bitcoin Mining operations commenced in April 2024, following commissioning of the substation. As of December 31, 2024, we deployed 400 MW of Bitcoin Mining infrastructure comprised of four completed 100 MW buildings, Buildings A1, A2, B1, and B2.

​

Through December 31, 2024, we incurred costs of approximately $415.9 million related to the development of the first phase of the Corsicana Facility, which consisted of $10.1 million for land and $405.8 million of initial developments costs and equipment.

Revenue from Operations

Bitcoin Mining

We expect to generate ongoing revenue from Bitcoin rewards in connection with our Bitcoin Mining operations and our ability to liquidate Bitcoin rewards at future values will be regularly evaluated to generate cash for operations.

Generating Bitcoin rewards which exceed our production and overhead costs will determine our ability to report profit margins related to such Bitcoin Mining operations, although accounting for our reported profitability is significantly complex. Furthermore, regardless of our ability to generate proceeds from the sale of our Bitcoin produced from our Bitcoin Mining business, we may need to raise additional capital in the form of equity or debt to fund our operations and pursue our business strategy.

The ability to raise funds through the sale of equity, debt financings, or the sale of Bitcoin to maintain our operations is subject to many risks and uncertainties and any future equity issuances or convertible debt offerings could result in dilution to our existing stockholders and any future debt or debt securities may contain covenants that limit our operations or ability to enter into certain transactions. Our ability to realize revenue through Bitcoin production and successfully convert Bitcoin into cash or fund overhead with Bitcoin is subject to a number of risks, including regulatory, financial and business risks, many of which are beyond our control. Additionally, we have observed significant historical volatility in the market price of Bitcoin and, as such, future prices cannot be predicted. See the discussion of risks affecting our business under Part I, Item 1A. “Risk Factors” of this Annual Report.

Engineering

Substantially all Engineering revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts. Revenue is recognized over time as performance creates or enhances an asset with no alternative use, and for which we have an enforceable right to receive compensation as defined under the contract. The length of time required to complete a custom product varies but is typically between four to 12 weeks.

Customers are typically required to make periodic progress payments based on contractually agreed-upon milestones.

If we are unable to generate sufficient revenue from our Bitcoin Mining or Engineering operations when needed or secure additional sources of funding, it may be necessary to significantly reduce our current rate of spending or explore other strategic alternatives.

Long-term Debt

In December 2024, we issued $594.4 million aggregate principal amount of the Convertible Senior Notes maturing in 2030 (“2030 Notes”) and used $577.5 million of the net proceeds from the 2030 Notes to acquire 5,784 Bitcoin.

As part of the Block Mining Acquisition, we acquired a $5.7 million note payable with a fixed interest rate of 8.81%. The note payable matures in December 2035, with annual principal and interest payments due beginning on December 31, 2024.

See Note 12. Debt, for additional descriptions of the long-term debt instruments described above.

50

Table of Contents

ATM Equity Offerings

During 2024, 2023 and 2022, we offered and sold shares of our common stock through at-the-market equity offering (“ATM Offerings”) programs pursuant to sales agreements with sales agents (each, an “ATM Program”). See Note 14, Stockholders’ Equity for the terms and provisions of each sales agreement.

​

The following table sets forth shares sold and net proceeds received (net of sales commissions and expenses) from shares sold under each ATM Program during the years ended December 31, 2024 and 2023 (in thousands, except number of shares):

​

As of December 31, 2024, approximately $362.2 million of our common stock remained available for issuance and sale pursuant to the August 2024 ATM Program. The remaining sales agreements were terminated as of August 9, 2024.

​

Legal Proceedings

We have been named a defendant in several lawsuits as more fully described in Note 17. Commitments and Contingencies.

Cash Flows

The following table presents a summary of our cash flows:

​

Operating Activities

The increase in cash used in operating activities during the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily attributable to a $166.7 million reduction in proceeds from the sale of Bitcoin due to our ceasing of sales of Bitcoin early in 2024, increased power costs of $59.8 million, and a $73.5 million increase in selling, general, and administrative costs, excluding stock-based compensation, all of which were primarily driven by our increased mining capacity and headcount, combined with other general operating costs such as insurance and information technology projects to support our growth.

​

Investing Activities

Cash used in investing activities during the years ended December 31, 2024 and 2023, was primarily attributable to purchases of Bitcoin and purchases and deposits paid for miners and purchases of property and equipment for our ongoing expansions, as we continue towards our anticipated 38.4 EH/s of total self-mining hash rate capacity by the end of 2025. During 2024, we acquired 5,784 Bitcoin for approximately $577.5 million. We completed our expansion of the Rockdale Facility during the year ended December 31, 2023, and continued to develop the Corsicana Facility, which commenced self-mining operations during the second quarter of 2024, and the first phase of which was completed in the fourth quarter of 2024. During the years ended December 31, 2024 and 2023, we paid $442.5 million and $230.4 million, respectively, in deposits and payments for the purchase of miners and paid $240.3 million and $193.7 million, respectively, for the purchases of property and equipment, including construction in process. During 2024, we also purchased 90.1 million shares of Bitfarms common stock for $203.8 million, acquired E4A Solutions for $50.9 million in cash (net of cash acquired), and acquired Block Mining for $7.2 million in cash (net of cash acquired).

51

Table of Contents

Financing Activities

For the years ended December 31, 2024 and 2023, net cash provided by financing activities primarily consisted of net proceeds from our ATM Offerings of $956.6 million and $761.8 million, respectively. During the year ended December 31, 2024, we received proceeds of $594.4 million from the issuance of the 2030 Notes, for which we paid debt issuance costs of approximately $15.2 million. In addition to the 2030 Notes, we assumed approximately $5.3 million in debt as part of the Block Mining Acquisition. We have primarily financed our strategic growth through proceeds from our ATM Offerings and issuances of our common stock. It is reasonably likely that we will continue to finance our ongoing growth with proceeds from current and future ATM Offerings and may utilize additional convertible debt offerings.

​

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our financial statements in accordance with GAAP, there are certain accounting policies that may require a choice between acceptable accounting methods or may require substantial judgment or estimation in their application. The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our Consolidated Financial Statements. An accounting estimate is considered critical if both (i) the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment involved, and (ii) the impact within a reasonable range of outcomes of the estimates and assumptions is material to our Consolidated Financial Statements. These include: business combinations, valuation of the Rockdale PPA and the Corsicana PPA, long-lived assets and stock-based compensation. We believe these and other accounting policies set forth in Note 1. Basis of Presentation and Summary of Significant Accounting Policies should be reviewed as they are integral to understanding our results of operations and financial condition.

We have discussed the selection of critical accounting policies and the effect of estimates with the Audit Committee of our Board.

Business combinations

Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for property and equipment and contingent consideration, where applicable. Although we believe our assumptions and estimates have been reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired companies and are inherently uncertain. Estimates used in determining the value of property and equipment included the estimated replacement costs, which included replacement cost new, remaining life, and effective age. Estimates primarily used in determining the value of the contingent consideration included the timing and probability of achieving milestones and discount rates.

Rockdale PPA and Corsicana PPA Valuation

The Rockdale PPA and the Corsicana PPA are accounted for as derivatives, the valuations of which are based on significant unobservable inputs utilized in the valuations, which include discounted cash flow estimation models containing quoted commodity exchange spot and forward prices and are adjusted for basis spreads for load zone-to-hub differentials through the respective terms of the Rockdale PPA and the Corsicana PPA. Significant judgement and estimations are required when creating the discounted cash flow estimation models. Should our discounted cash flow estimation models change significantly, potentially material changes to the fair value of the derivative asset may result, which could have a material impact on our financial statements.

See Note 9. Power Supply Agreements for a discussion of the unobservable inputs and their impact on the valuation.

Long-lived assets

Long-lived assets are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Judgment is necessary in estimating our various assets’ useful lives. This includes evaluating our own usage experience with our currently owned assets, the quality of materials used in construction-related projects, and for its miners, the rate of technological advancement and market-related factors such as the price of Bitcoin and the Bitcoin network hash rate, which impact the value of the miners. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, which is determined based on a comparison of the carrying amount of an asset to undiscounted future cash flows expected to be generated by the asset. Significant judgment is used when estimating future cash flows, particularly the price of Bitcoin and the Bitcoin network hash rate. If such assets are considered impaired, an impairment is recognized based on the amount by which the carrying amount exceeds the estimated fair value of the assets.

52

Table of Contents

Should our estimates of useful lives, undiscounted future cash flows, or asset fair values change, additional and potentially material impairments may be required, which could have a material impact on our reported financial results.

Stock-based Compensation

Stock-based compensation expense related to share-based payment awards is recognized at the grant date of the award and is estimated based on the fair market value of our common stock on the date of the grant. Compensation cost for performance-based, share-based payment awards is recognized over the performance period when achievement of the milestones and targets becomes probable. We use significant judgment in determining the likelihood of meeting milestones and market conditions. Inputs into valuation models such as Monte Carlo simulations include both the Company’s and the Russell 3000’s historical and expected annual volatilities, and depending on the inputs selected, we could calculate significantly different estimated grant date fair values, materially impacting the valuation of our stock-based awards and the stock-based compensation expense we recognize in future periods.

Recently Issued and Adopted Accounting Pronouncements

See Note 2. Significant Accounting Policies and Recent Accounting Pronouncements for a description of applicable recent accounting pronouncements and any material impact on our financial statements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

​